Financial Post Article: Looking for the right strategy to draw down retirement income
The Financial Post asked me to review the finances of a Toronto couple who would like to know the best strategy for drawing income from their pension, RRSPs, Canada Pension Plan and Old Age Security.
Currently they have focused their investment strategy on dividend-paying stocks (largely based in North America) and away from growth and long-term capital appreciation.
In this article you’ll learn:
- Why everyone must decide on one of two retirement income strategies.
- What the retirement vision is for this couple, now that they have a two-year-old.
- Why retirees need cash flow, not income.
- Why $50,000/year tax-fee dividends only apply when both have no other income, they are under age 65, and all their dividends are from companies in Canada (not diversified). (Many dividend investors on the internet think everyone can get $50,000/year tax-free if it is all Canadian dividends.)
CLICK THE LINK BELOW TO READ THE ARTICLE BY MARY TERESA BITTI:
Looking for the right strategy to draw down retirement income
Enjoy!
Ed
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Hi Sharon,
Putting dividend stocks into your TFSA to avoid the tax drag makes sense from a tax perspective, but not from an investment perspective.
In a TFSA dividend investing is exactly the same as equity investing except for a smaller universe of investments. You consider 80% of stocks instead of 100%. There are some exceptional stocks that don’t pay dividends. Why arbitrarily exclude all non-dividend stocks?
The OAS clawback is 15% of your taxable income, which is 138% of dividends you receive. So the clawback is 21% of Canadian dividends vs. only 15% for other income.
Don’t forget, tax & the OAS clawback are near 0% most years for deferred capital gains! 🙂
Ed
I have considerable room in my stock based TFSA . Would it be a good strategy to put dividend paying stocks within it. That way you pay no tax on your dividends and avoid claw back on your OAS. Does such a strategy make sense?